§ 3.26 p.m.
§ Viscount Hanworthasked Her Majesty's Government:
What is the difference in retail price between cigarettes in the United Kingdom and in other EC member states; whether they will press the Community to harmonise prices; and whether they believe that any differences in price could encourage smuggling in view of the proposed relaxation of Customs controls after 1992.
§ The Minister of State, Department of Transport (Lord Brabazon of Tara)My Lords, I shall circulate a full list of retail prices in the most popular price category in all member states in the Official Report. However, for a packet of 20 cigarettes prices range from 32 pence in Spain to £2.32 in Denmark.
The Government are well aware that the wide cigarette price differentials after the abolition of routine fiscal frontier controls in 1993 will increase the risk of smuggling. Developing Customs controls will address that risk. For fiscal, health and trade reasons, the Government's long-term aim remains to persuade other member states to raise their prices towards United Kingdom levels.
§ Following is the information referred to:
| Spain | 32 pence |
| Greece | 42 pence |
| Portugal | 60 pence |
| Luxembourg | 81 pence |
| Italy | 87 pence |
| France | 105 pence |
| Netherlands | 105 pence |
| Belgium | 113 pence |
| Germany | 146 pence |
| Ireland | 184 pence |
| UK | 208 pence |
| Denmark | 233 pence |
§ Viscount HanworthMy Lords, I thank the Minister for that Answer. Does he agree first that the Treasury is likely to lose substantially if the number of cigarettes that can be imported is raised? Secondly, despite our concern that people who smoke should keep to low tar cigarettes, is there not a danger that substantial numbers of high tar cigarettes will enter the country?
Finally, does the Minister not feel that it would be a grave mistake, were there to be an increase in taxation on tobacco or cigarettes in the Budget?
§ Lord Brabazon of TaraMy Lords, on the latter point, I cannot comment on my right honourable friend's proposals for cigarette taxation in the forthcoming Budget.
As concerns losses to the Revenue, the single market involves removing barriers to trade and to people and we are scrapping import documentation for European Community trade. We need to get rid of travellers' allowances limits as well if we are to abolish the fiscal frontier for people.
We successfully negotiated agreement on minimum indicative levels to minimise the risk of imports. There will be a revenue loss, but I believe that we have achieved a good balance between safeguarding United Kingdom commercial interests and ensuring the free movement of travellers.
§ Lord Hailsham of Saint MaryleboneMy Lords, does not the wide price differential which has been disclosed by my noble friend in his Answer have a bearing on the proposals currently before the European Community for the abolition of frontier controls?
§ Lord Brabazon of TaraMy Lords, as I said in my original Answer, the abolition of frontier controls will increase the risk of smuggling. That is why it is important that we should develop our Customs controls in order to address that risk. Customs are therefore developing controls designed to deter illegal tobacco imports. The greater use of intelligence in consultation with the trade and other member states will be used by increased inland staff who will target illicit activity. In addition, the new Department of Health labelling requiring conspicuous health warnings in English will help identify foreign duty paid goods.
§ Lord Mason of BarnsleyMy Lords, is the Minister aware that smuggling occurs within the European Community now? Half the American tobacco sold in Spain is smuggled in and the government lose £60 million a year as a result. Will the Minister tell us what safeguards will be established on 1st January 1993 to stop the smuggling of cheap cigarettes from abroad into this country?
§ Lord Brabazon of TaraMy Lords, I am well aware that smuggling takes place on the Continent of Europe. In the previous reply I gave to my noble and learned friend I outlined some of the proposals which Customs have suggested to prevent smuggling into this country. At the December meeting of ECOFIN a minimum indicative level of 800 cigarettes was agreed. That will assist Customs in distinguishing between commercial and personal imports.
§ Lord Stoddart of SwindonMy Lords, if the other countries of the EC refuse to increase their prices in accordance with the request of the British Government, would it not be foolish in the extreme for the British Government to widen further the differential between prices in this country and prices in other countries in the EC? Would that not lead to an 1422 increase in smuggling and, even worse, to an increase in the consumption of high tar cigarettes imported from abroad?
§ Lord Brabazon of TaraMy Lords, we have made clear in EC negotiations that we will not accept policies that undermine UK health and fiscal policy. That course has proved successful in so far as maximum rates or target rates that would have required us to reduce our duties have been abandoned. My right honourable friend the Chancellor made it a condition of agreement to the post-1992 regime that a satisfactory system to distinguish between genuine personal importation of tobacco and commercial imports would be established. That system embodies the indicative level I referred to.
§ Lord PestonMy Lords, I hate to intervene in a moment of controversy and disagreement. However, surely everyone would agree that a swingeing increase in the excise duties on cigarettes is vital on public health grounds. I have no objection to people killing themselves but they should do so at high cost rather than low cost. Should we not face up to the obvious fact that, by any definition, a single market means no frontier controls and free trade? That leads inevitably to the necessity of equalising duties. There is no way round it. I appreciate the difficulties Her Majesty's Government face. Any government would face those difficulties. Is the Minister aware, however, that to pursue any other course would lead to all kinds of difficulties in terms of smuggling and other illegal activities? Does he agree that in the end a single market means no frontier controls and no differentials in excise duties?
§ Lord Brabazon of TaraMy Lords, I have already said that the single market will require changes in frontier controls. As regards common excise duties, we have sought the agreement of our European partners to increased excise duties abroad. There has been an increase, and the price of cigarettes will increase in other countries. However, as cigarettes are so much cheaper in some countries, the impact will not be great. I have already said that I cannot comment on what my right honourable friend might announce in the forthcoming Budget as regards duties. However, I should point out that the Government have increased total taxes on cigarettes by 60 per cent. in real terms since 1979. Consumption has declined by nearly 25 per cent. during that period. Therefore the increase has had some effect on consumption.
§ Lord Orr-EwingMy Lords, my noble friend has recognised that the ratio of cigarette prices between Britain and other countries is 7:1. That means a huge incentive to smuggle cigarettes. When smuggled cigarettes are seized and then sold by the authorities —wherever they are sold—some of that money could be put towards basic medical research to discover why it is that the Japanese, who smoke twice as many cigarettes per head as we do, have half the number of deaths attributable to smoking that we have.
§ Lord Brabazon of TaraMy Lords, my noble friend makes a different point. As regards funding medical 1423 research with money that might be raised through selling seized smuggled goods, I am sure that my noble friend will be aware of the Treasury's attitude to hypothecation.
Lord Bruce of DoningtonMy Lords, when the frontier controls and Customs duties are abolished, how will the question of smuggling arise?
§ Lord Brabazon of TaraMy Lords, an indicative level of 800 cigarettes for personal consumption has been agreed. Amounts in excess of that for commercial purposes will be subject to United Kingdom duties and tax.
§ Lord Cocks of HartcliffeMy Lords, I had hoped we would get through this Question without the zealots raising their heads. I am disappointed that that has not been the case. My Bristol connections are well known and I must say that I am somewhat reassured by the Minister's comments. However, will there be constant vigilance while cigarettes are manufactured in Western Europe to ensure that the British industry will not be put at a disadvantage vis-à-vis its competitors?
§ Lord Brabazon of TaraMy Lords, I am aware of the anxiety of the British tobacco industry in this matter. The Government agree with the Tobacco Advisory Council that ad valorem tobacco duty favours cheap products and magnifies differences in manufacturers' prices. Indeed, we recorded in the ECOFIN meeting minutes that what is needed for the future is a minimum duty expressed as a cash sum instead of, or as well as, the figure of 57 per cent. agreed by the council.